Dividend Powerhouses: A Closer Look at Two Market Leaders
The Vanguard High Dividend Yield Index ETF (VYM) and the Schwab U.S. Dividend Equity ETF (SCHD) are two of the most prominent dividend-focused exchange-traded funds (ETFs) in the US market. Both hail from esteemed investment firms and boast impressive portfolios of blue-chip dividend stocks. Moreover, they share a common trait: extremely low expense ratios.
A Brief Overview of VYM and SCHD
Launched in 2006, VYM is a stalwart dividend ETF from Vanguard, with over $60 billion in assets under management. It tracks an index that measures the investment return of common stocks characterized by high dividend yields. SCHD, introduced in 2011, has grown to become slightly larger, with $65.8 billion in assets under management. It focuses on the quality and sustainability of dividends, investing in stocks selected for fundamental strength relative to their peers.
Portfolio Composition: A Tale of Two ETFs
VYM boasts a diversified portfolio of 538 stocks, with its top 10 holdings accounting for just 24.7% of the fund. These holdings include a mix of blue-chip dividend stocks from various sectors, such as healthcare, energy, and finance. Interestingly, semiconductor stock Broadcom (AVGO) is VYM’s largest holding, despite its relatively low yield of 1.3%. SCHD, on the other hand, holds 101 stocks, with its top 10 holdings making up 40.7% of its portfolio. Its top holding is BlackRock (BLK), the world’s largest investment manager by assets.
Performance: A Long-Term Perspective
Both ETFs have demonstrated strong performance over the years. VYM has returned 9% annually over the past three years, outpacing SCHD’s 6.7% annualized return. However, SCHD has outperformed VYM over the past five and 10 years, with annualized returns of 12.7% and 11.5%, respectively.
Dividend Yield: A Key Differentiator
VYM features a solid dividend yield of 2.8%, double the S&P 500’s current yield. However, SCHD takes the lead with a higher yield of 3.4%. Both ETFs have a long history of paying dividends and increasing their payouts, but SCHD’s higher yield gives it an edge.
Expense Ratios: A Key Advantage
Both VYM and SCHD boast identical expense ratios of just 0.06%, making them extremely cost-effective options for investors. This means that an investor putting $10,000 into either fund would pay only $6 in fees annually.
Wall Street’s Verdict
According to Wall Street analysts, both ETFs earn a Hold consensus rating, with average price targets implying upside potential of 20.5% and 17.0% for VYM and SCHD, respectively.
The Verdict: SCHD Takes the Crown
While both ETFs have much in common, SCHD’s superior yield and long-term performance make it the better choice for dividend investors. Its higher yield of 3.4% and impressive track record of outperforming VYM over the past five and 10 years give it the edge in this head-to-head comparison.
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